Brocker.Org: Japanese Yen Outlook Remains Mired by Dovish BoJ- RSI Trigger on Tap?

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Talking Points:

Japanese Yen Outlook Remains Mired by Dovish BoJ- Bullish RSI Trigger on Tap?

EUR/USD Struggles as ECB Wards Off Taper Tantrum; U.S. 1Q GDP in Focus.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

111.19

111.60

111.03

13

57

USD/JPY Daily

USD/JPY Daily Chart

Chart – Created Using Trading View

  • The Bank of Japan (BoJ) interest rate decision failed to generate a meaningful reaction in the USD/JPY exchange rate even as the central bank raised its growth forecast for 2017 & 2018, and the Japanese Yen remains vulnerable to further losses as market participants boost their appetite for risk.
  • Closely watching the RSI as it appears to be making a more meaningful attempt to break out of the bearish formation carried over from late-2016, with a bullish trigger keeping the near-term bias tilted to the topside; may see dollar-yen ultimately threaten the downward trending channel as there appears to be a shift in market behavior.
  • Despite the limited reaction to the key developments coming out of the U.S. & Japan, the resilience in the global benchmark equity indices may continue to dampen the appeal of the Yen as the BoJ sticks to its Quantitative/Qualitative Easing (QQE) with Yield-Curve Control, while investors treat the U.S. dollar as a higher-yielding currency.
  • It seems as though the BoJ is keeping the door open to further support the real economy as Governor Haruhiko Kuroda highlights a dovish outlook and warns ‘there’s a high chance of achieving 2% inflation in the year to March 2019, but it may also take longer than that to go above 2% stably;’ nevertheless, Fed Fund Futures continue to price a greater than 70% probability for a June rate-hike as the FOMC lays out a more detailed exit strategy and looks to unload the balance sheet later this year or in early-2018.
  • As a result, a break/close above the Fibonacci overlap around 111.10 (61.8% expansion) to 111.60 (38.2% retracement) may open up the next topside hurdle around 112.40 (61.8% retracement) to 112.80 (38.2% expansion), which largely lines up with channel resistance.

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Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.0867

1.0933

1.0852

37

81

EUR/USD Daily

EUR/USD Daily Chart

Chart – Created Using Trading View

  • The Euro struggles to hold its ground following the European Central Bank (ECB) interest rate decision as the Governing Council keeps the door open to further extend its Quantitative Easing (QE) program and pledges ‘the net asset purchases, at the new monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary;’ seems as though the central bank is increasing its efforts to ward off a taper tantrum as officials warn ‘a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term.’
  • The fresh comments suggest the ECB is in no rush to further reduce the pace of its asset-purchases as ‘measures of underlying inflation remain low and are expected to rise only gradually over the medium term,’ and the ECB may continue to tame market speculation as it struggles to achieve its one and only mandate for price stability.
  • Nevertheless, the U.S. 1Q Gross Domestic Product (GDP) report may prop up EUR/USD as the figures are anticipated to show the economy expanding a meager 1.0% per annum, but a material uptick in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may heighten the appeal of the greenback as it puts pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy sooner rather than later.
  • With that said, EUR/USD may fill-in the gap following the French election especially as the Relative Strength Index (RSI) turns around ahead of oversold territory, with the oscillator threatening the bullish formation from earlier this year; lack of momentum to hold above the Fibonacci overlap around 1.0880 (61.8% expansion) to 1.0910 (38.2% expansion) may spark a larger pullback, with the first region of interest coming in around 1.0780 (100% expansion) to 1.0790 (38.2% expansion) followed by 1.0660 (50% expansion) to 1.0680 (78.6% expansion).

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IG Sentiment

  • Retail trader data shows 57.3% of traders are net-long USD/JPY with the ratio of traders long to short at 1.34 to 1. In fact, traders have remained net-long since January 9 when USD/JPY traded near 117.616; price has moved 5.3% lower since then. The number of traders net-long is 6.8% lower than yesterday and 33.9% lower from last week, while the number of traders net-short is 17.1% higher than yesterday and 30.3% higher from last week.
  • Retail trader data shows 31.8% of traders are net-long EUR/USD with the ratio of traders short to long at 2.14 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.07154; price has moved 1.4% higher since then. The number of traders net-long is 0.6% lower than yesterday and 28.2% lower from last week, while the number of traders net-short is 5.2% lower than yesterday and 18.7% higher from last week.

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— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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